Triple Top Confirmation Entry And Major Resistance Risk/Reward Setup GBP/USD 11/04/2011
The chart above shows 2 of the 3 day trades taken today. One trade not shown was a EUR/USD confirmation entry long that we rode for +20 pips. Following that was a confirmation entry short on the GBP/USD that ended up failing. The resistance level we were playing off of was a previous double top that looked like it would hold and end up being a triple top. As with all confirmation entries once we reached the level of resistance we waited for the candles to form before taking the entry.
The first candle in this short term day trading strategy was a nice reversal candle that blew through the resistance only to close back down below it and form a perfect reversal candle. The next candle formed a great confirmation candle down. In the case of a short position the confirmation candle must simply close below the body of the reversal candle in order to be considered a confirmation candle. Once those two candles formed we then knew our direction and simply waited on the third candle to pullback into the body of the reversal candle (candle #1) at which point we took out short position.
Unfortunately my charts froze in the forex trading room after taking this position, and I didn’t realize the market had shot up 15 pips rather quickly. Either way I would have ended up taking a hit on this trade. Overall on this trade I lost -30 pips. Between the EUR/USD trade of +20 pips and this trade of -30 pips, we were overall down -10 pips for the day.
Fortunately the market gave us one more opportunity. As the GBP/USD approached the previous days high, I mentioned that would be a great high risk/reward setup if the market reached the overall highs. At this point in the market you had two things going for a GBP/USD short. One was that the market for the last two weeks had ran over 500 pips with no let up, with 120 of those pips coming during today’s sessions. Because of this I didn’t believe the market had enough left to make new highs, without first making a retracement. The second reason I entered this trade and really the most compelling reason was the high risk/reward of this trade setup. We entered this trade with a 15 pip stop loss and I felt there was at least a 4/1 reward vs. risk setup occurring. Knowing this we took the entry short from 1.6418
Currently I have the stop loss set to 1.6398 which locks in at least +20 pips of profit on this trade, and we are currently up around +80 pips. Worst case scenario we will end up +10 pips on the day. Shortly I will tighten up the stop for this trade, so if you are a member to the trading room watch your email for trade updates. See you all for tomorrow!